Do I Need to Pay Capital Gains Tax during Probate?

By Probate Solicitor Stephen Carruthers

The sale of some assets during Probate may be liable for Capital Gains Tax. The deceased person's annual tax allowance can be used to reduce the tax liability during the tax year leading up to their death and for the following two years.

For property that is being transferred straight to a Beneficiary, Capital Gains Tax will not usually be payable. If the Beneficiary then sells the property on, it may become liable for Capital Gains Tax at that point.

What is Capital Gains Tax?

Capital Gains Tax is a tax that sometimes needs to be paid when significant assets are sold (or deemed to have been sold). Capital Gains Tax will be charged on any profit that has been earned on the asset (so the difference between the purchase price and the sale price.)

Someone who is administering the Estate of a deceased person (known as a Personal Representative) would be subject to a Capital Gains Tax rate of 24% on gains made on the sale of chargeable assets above the allowance. This tax would be payable by the Estate, not by the Personal Representative themselves. This rate is the same as the rate applied to higher rate income tax payers.

The rates for individuals who are on the basic rate income tax is 18%. It is important to note that as an individual you are not usually subject to Capital Gains Tax on the sale of your main home.

When Capital Gains Tax Applies During Probate

There are two circumstances where Personal Representatives need to consider the Capital Gains Tax implications of a transaction.

Capital Gains Tax in the Year of Death

A Capital Gain may occur where a deceased person sold assets (for example, a second home) in the tax year leading up to the date of their death. It is the Personal Representative's responsibility to account to HM Revenue & Customs for any such gains from the sale of assets.

As noted above, a Personal Representative may take advantage of any of the deceased's unused annual exemption for that tax year.

Capital Gains Tax during the Administration of an Estate

For assets that have been sold during the administration of the Estate, the deemed purchase price for Capital Gains Tax purposes is the value that the asset held at the date of the owner's death. This would then be deducted from the sale price to calculate the profit and establish whether Capital Gains Tax is due.

Note, for Capital Gains Tax purposes during Estate administration, Personal Representatives are only entitled to take advantage of the individual's annual exemption for the year of their death and the following two tax years.

If an asset, such as a property, is transferred to a Beneficiary of the Estate then no Capital Gains Tax will be payable on this. However, if the Beneficiary then sells the property and makes a profit on this then they may become liable to pay Capital Gains Tax at this point. This would be payable by the Beneficiary themself, not by the Estate. In this instance, the profit would be calculated by deducting the date of death value of the property from the sale price.